13 July 2022
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IMF downgrades US growth forecast

By Daniel Richards

  • The IMF has cut its real GDP growth forecast for the US, taking it to 2.3% this year, from the 2.9% it predicted at the close of June. The 2023 forecast is even weaker, at 1.0% (down from the previous 1.7%). The Fund cautioned that the surge in price growth (CPI inflation is predicted to have risen to 8.8% y/y in June data released today) was ‘posing systemic risks to the United States and the global economy.’ The jobless rate forecast was raised from 3.2% to 3.7% (it is currently 3.6%), climbing to 5.0% next year.
  • There was no relief for the Euro yesterday as more poor data emerged from the currency bloc, pushing the currency down to parity with the USD at points for the first time in 20 years after having flirted with it on Monday. Both the expectations and current situation components of Germany’s July ZEW survey came in well short of expectations and considerably shy of the (already weak) levels seen in June. Expectations declined to -53.8. This was the lowest level for the index since 2011, down from -28.0 in June and missing projections of -40.5. Meanwhile, the current situation survey was modestly less negative, at -45.8, from -27.6 in June and compared with predictions of -34.5. The outlook for Germany is deteriorating further amidst fears that Russian gas could cease to flow to the country, pushing up prices and jeopardising industrial production.
  • Indian CPI inflation for June was 7.0% y/y, in line with May’s print and modestly lower than the 7.1% that consensus had projected. The recent acceleration in price growth was expected to moderate as the government had taken a number of measures to curb it, including cutting taxes at the pump and on cooking gas and boosting subsidies on fertiliser, which helped to outweigh the ongoing rise in global commodity prices. Even so, we expect the RBI to play its part in containing inflation and we forecast a further 75bps of hikes over the remainder of the year, taking the benchmark repo rate to 5.65% by year-end.
  • In more Indian data released yesterday, industrial production rose 19.6% y/y in May, broadly in line with projections (20.8%) and up from 7.1% in April. Consumer durables saw the strongest growth at 58.5% y/y, while capital goods production rose 54.0%.
  • The Reserve Bank of New Zealand raised its benchmark interest rate by 50bps this morning, the third consecutive such hike. This takes the official cash rate to 2.5%, and the MPC agreed ‘it remains appropriate to tighten monetary policy at pace…’

Today’s Economic Data and Events

  • 10:00 UK industrial production, May, % m/m. Forecast: 0.0%
  • 16:30 US CPI inflation, June, % m/m. Forecast: 1.1%
  • 16:30 US CPI inflation, June, % y/y. Forecast: 8.8%
  • 18:00 Bank of Canada rate decision. Forecast: 2.25%

Fixed Income

  • US Treasuries closed slightly higher, pushing back from intra-day highs reached in the middle of the trading session. Yields on the 2yr UST fell by 2bps to 3.0491% while on the 10yr yields closed at 2.9687%, down about 2bps. Markets are likely to be choppy ahead of the release of the June CPI number later today, with another acceleration likely to set up a 75bps hike from the Fed later this month.
  • European bond markets closed up strongly with yields on the 10yr bund down by 11bps to 1.126% and the 10yr gilt yield settling at 2.072%, down 10bps. Emerging markets were more mixed, however, with yields on South African bonds up by almost 12bps to 11.27% while Indian 10yr yields closed lower by 3bps to 7.392%.


  • The movement in FX markets overnight was about what EURUSD would take if it hit parity (it did, briefly) and what signals the market can take for future movements. The single currency closed at 1.0037, marginally lower but the pair did bounce back after hitting the 1 level. However, with no apparent easing in the near-term economic pressures for the Eurozone, the risk of retesting parity or moving below it appear acute.
  • GBPUSD was likewise stable with a negative bias, settling at 1.889 while USDJPY managed to move lower by 0.4% to 136.87. Currency markets will be waiting for the release of the US CPI later today to provider a clear impetus for the next move.
  • Commodity currencies were more mixed with AUDUSD adding about 0.4% to 0.6758 and NZDUSD up by 0.3% to 0.6129. USDCAD, however, moved against the loonie with a gain of 0.12% to 1.3022.


  • Tuesday saw sour sentiment in global equity markets entrench further, with negative news and data releases weighing on the outlook. In Asia, the prospect of renewed lockdowns in China as Covid-19 case numbers rise once more in Shanghai contributed to the Shanghai Composite losing -1.0%, while the Hang Seng dropped -1.3%. In Japan, the Nikkei lost -1.8%, paring Monday’s gains.
  • Stocks were similarly weighed down in Europe earlier in the session, where the growth outlook is looking increasingly precarious and German data disappointed, but they bounced back later in the da0079. Germany’s DAX gained 0.6%, the CAC 0.8% and the FTSE 100 0.2%, while the composite STOXX 600 gained 0.5%.
  • There were more losses in the US, however. The NASDAQ was the biggest loser as it dropped -1.0%, followed by the S&P 500 (-0.9%) and the Dow Jones (-0.6%).
  • Locally, markets gained as they reopened from the long Eid weekend. The ADX added 0.1% and the DFM 0.6%. Saudi Arabia’s Tadawul index remained closed.


  • Oil prices endured some substantial selling overnight with Brent futures down 7% to USD 99.49/b and WTI falling by almost 8% to USD 95.84/b. The main factor driving oil lower is the negative sentiment around macro-economic conditions as oil market fundamentals still appear supportive.
  • OPEC released its monthly oil market report overnight with an estimate for a market deficit of about 1m b/d in 2023. OPEC members could fill in the gap but it would require considerably higher aggregate production than the producers’ bloc has been able to achieve.
  • The API reported a build in US crude stocks of 4.8m bbl last week along with large builds in gasoline and distillate stockpiles.

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Written By

Daniel Richards Senior Economist

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